Compared to U.S. Bailout, Euro Bailout Is Nothing [View article]
Don't think for a second that the EU is done; they are simply using a top down approach to financial rescue by first bailing out insolvent states. As they drill down further and peel back the onion, they will start bailing out individual banks and businesses. Yesterday, the FT reported that European banks are far behind their US counterparts in writing down impaired loans and they could be looking at a $trillion or more of writedowns. It's too early to call the winner of the bailout race.
Federal Housing Administration's Stevens Is Right: The System Is Sick [View article]
Given the prominence of housing and securitized mortgages in the last and continuing crisis, it's nothing less than remarkable that the GSE's and the FHA were not included in the first installment of Finreg.
As with the Arizona border, I believe the issue demands immediate action and difficult decisions which run against the grain of constituency politics.
Supporting this cynical view is that the senate rejected an amendment which would have taken steps to ensure that mortgage borrowers who benefit from federal guarantees put 5% down and demonstarte an ability to service and repay borrowed monies.
What Should We Do With Fannie and Freddie? [View article]
This thoughtful proposal is far to rational for liberals who, during passage of the Senate version of Finreg, rejected modest proposals to ensure that borrowers can repay loans.
The WSJ on the Fed's Mortgage 'Assets' [View article]
When the agencies announced they would begin buying seriously delinquent securities, the explanation given was that it would be more cost effctive to simply purchase delinquent securities than continue guaranteeing them. Like the author, I believe both the timing and purpose of this program is suspect. Here is some background on the agency program:
“[T]he cost of guarantee payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in the company’s mortgage-related investments portfolio as a result of the required adoption of new accounting standards and changing economics,” Freddie said in the announcement today.
New Financial Accounting Standards (FAS) 166 and 167 affected the transfer of financial assets and the consolidation of variable interest entities. Essentially, the standards require financial firms to bring securitized assets onto balance sheets.
Because of the standards, it would be more expensive to maintain guarantee payments to security holders than simply purchasing most delinquent loans out of PCs and holding them in portfolio, Freddie said.
Economic Mindset Won't Change; Depressionary Relapse May Be Coming [View article]
Current policy is a combination of shoring-up home prices while at the same time allowing banks to defer losses through relaxed M2M accounting standards. All of this is being done to keep bank balance sheets as healthy as possible until home prices recover under the sanguine view that they will recover. But the odds are they will not.
Recognizing this, you are essentially making an argument to repeal current policy and move towards avoiding the Japanese experience by encouraging price discovery, recognizing impaired assets and dealing with insolvent banks. By doing this we purge the system of malinvestmments and allow remaining capital to be allocated to better uses and invested in assets aligned with demand.
How deflationary this course might be is not at all clear as we are already in a period in which money supply is contracting, consumers are delevering and banks are not lending; how much more deflation would be introduced through the swift actions you advocate cannot be quantified. Banks, their owners and their creditors would take a hit but this would be offset by cleaving millions of consumers from all consuming mortgages, releasing spending power.
The jihad against deflation is a popular economic meme but I question the efficacy of fiscal spending and am far more concerned about our accumulating federal debt.
Short Selling Restrictions 'A Great Indicator of Imminent Market Crashes' [View article]
Now in conservatorship, the GSE's are nothing more than large financial labs which congress has used to test various theories of social and economic equity. That these policies have failed miserably cannot be debated.
Faced with reality, the SEC is simply trying to forestall the inevitable by imposing short selling restrictions that will not work over the long run. Market forces will eventually prevail and reflect the underlying values of any and all securities.
These restrictions on short selling may delay declines but as we have seen before if there are only "asks" and no "bids" prices will continue to collapse until fair value is established.
I believe both Greenspan and Bernanke are blind to elaborate new techniques employed in securitization (such as credit guarantees and insurance) blurring credit risks and raising the vexing questions of who is managing risk? Instead of addressing these issues, the Federal Reserve actually was highly supportive of securitization, furthering the probability of a fat tail.
Treasury and congress have pumped an extra $1.5 trillion or so into elite banks and things that benefit labor unions and those who receive transfer paymenst; and the Fed has monetized about $1.5 trillion of debt and is lending money to the elite at almost nothing so they play in the world's largest capital (casino) markets. And the FDIC has loaned Treasury's balance sheet to the tune of $8 or so trillion for a couple of basis points to guarantee debt issued by the elite.
The rest of the world has undertaken similar actions, but the dollar is getting pounded because we are duty bound to act in the interests of the world's defacto reserve currency and our own economic interests........but are not doing so. This tsunami of money is sluicing into just about every financial asset and historical correlations are falling apart because there have never been such oceans of money sloshing about. Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have outperformed the Standard & Poor’s 500 Index of U.S. stocks, which has gained 18.6 percent. That compares with 70.6 percent for Brazil’s Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.
Meanwhile corporations have slashed employment to to goose earnings; lending is contracting; unemploymnet is growing; international trade is collapsing; we are facing over $9trillion in deficit borrowing over the next decade; reserve holding of dollars is declining; and NOTHING has been done to reform the banking system because the banks own congress who own the administration. No wonder the elite have done well.
FHFA's DeMarco Speaks. Remarks Offer Little Room for Optimism [View article]
Our government must have more shoes than Imelda Marcos; on the same day the Senate heard DeMarco they also heard from the head of the FHA, another likely shoe to drop.
FHA foreclosures are up something like 75% and 20% to 25% of the loans issued in the last two years are in trouble. Ginnie packages FHA and VA but the guarantee liability rests with FHA.
From today's NYT reporting on a content FHA customer:
That was the case for Bernadine Shimon. Like many Americans, Ms. Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.
She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.
“The government gave me another chance,” she said.
UNBELIEVABLE!!!!!!!!!!!! Barney Frank said the program was helping to stabilize housing prices.
The Coming Consequences of Banking Fraud [View article]
If we look back at recent economic history and look for bubbles that have imploded, we quickly come upon the S&L crisis, the commercial property bubble (Japan), the emerging market bubble (we helped fuel it), the dot.com bubble and most recently the housing crisis.
In each case, successive bubbles were fostered through irresponsibly loose monetary policy that distorts normal market signals, encouraging speculation and consumption. And in each case the bubbles collapsed through tightening of credit to address imbalances and speculative excesses but well after the fact.
The Japanese experience is eerily similar to our recent crisis as that it was brought on by a high rate of domestic savings (we had China) easy money, loose oversight, an influential cartel and lax underwrting standards. Their response was to raise interest rates and then lower them when the scope of damage became apparent; the stock market cratered as did commercial and residential real estate prices.
The Japanese economy stagnated for the next decade and for a variety of reasons, including demographics and aging population, it is only a shadow of its former self. Most of this is a result of a farrago of poor policy responses to the crisis and a stubborn unwillingness to force the zombie banks to writedown indisputably bad assets.
Despite our unwillingness to force the banks to writedown bad assets, the unprecedented scale and scope (global) of current monetary and fiscal policy clearly has the potential to create the next bubble and I believe it will. Understanding that the effects of our monetary policy is not restricted to our shores, the massive injections of liquidity do not have to remain within the US and will trickle towards the next puddle of speculative excess.
If I am correct in where I think it will be.....and its just speculation on my part though alarm bells have already been heard.....it will be a big one. But that's part of the process; each bubble gets bigger, each inflicts ever more damage and each new bubble requires ever greater amounts of liquidity.
A number of the technicals were starting to scream sell; a strong sell came from the McClellan (AR) Oscillator which has been descending and was just touching zero (sell at zero when the signal line comes from ablove) late last week.
Your comments on the traders playing out the sentiment and momentum play are interesting because there are in for a day on a day trade or a couple of days on a swing. This is is exactly why the four junk stocks have acounted for 30% or so of recent volume.
Without delving into the fundamentals of this market, which in a manner of speaking do not exist or are either weak, the moves since the 666 lows of March have been characterized by low volume, imbalances between large cap and small cap, low grade issues enjoying big moves and serious and unrestrained excesses in valuations.
Sobering Stat: ARMS Index Indicates Market Is at Peak, Not Bottom [View article]
A host of the technical indicators I use have been warnings but this market is being driven by historically unique forces, including massive deficits and proportionate liquidity injections, or is being supported my the machinations of the Fed. In either case, what in the past have proven to be useful tools are being compromised, if not castrated, in the current setting.
The market is clearly overbought and has risen to unsustainable levels. It was first better than expected earnings, then it was the growth of China, then it was about housing and other reports, then it was we sold a few more cars through the clunker program and now we are starting to take stock of the basics. They have remained unchanged and over the long-run these cannot be abrogated by either liquidity or complicity.
Growth in China is in serious jeopardy and central authorities are genuinely concerned about creation of excess capacity and speculation in commodities, casino's and equities. Recent policy actions, designed to mute some of the excesses, has been initiated over concern of these excesses and the larger unspoken concern over the financial health of the economy. Corporations with deteriorating earnings are borrowing more money; under usual conditions they would be denied additional credit. In parallel, banks are concealing non-performing loans through rolling them over. Some smart people, including Micheal Grant, think China is a ticking time bomb.
Meanwhile, stateside, the core problems of underemployment, consumer spending and bankiing sector health remain unchanged. To an extent consumer spending and underemployment are intertwined; but even if consumers, who have jobs, were not frightened by the economy and the administration's policies they would still want to save and liquidate debt therby containing spending. Prospects for the unemployed are miserable and, unfortunately, government and the apparatchiks of MSM do nothing to either clarify or correct the resports released federal departments and agencies. The bottom line is hiring is still trending down amid a growing potential labor force.
If China follows the path of Japan, the model country that could do no wrong until 1989, and the US consumer spending continues to contract, what will be the catalyst to spur growth and profits? Many times people when confronted by such a question will resort to bromides that touch upon ingenuity, creativity and innovation but it is easy to forget that these essential qualities must be nurtured. A solid investment environment depends on a strong and stable currency, restrained federal spending, less harmful legislation, dependable contract law, limits on taxation and countercyclical capital regulation.
In my humble view things, when looking around the corner, appear rather bleak.
Compared to U.S. Bailout, Euro Bailout Is Nothing [View article]
Federal Housing Administration's Stevens Is Right: The System Is Sick [View article]
As with the Arizona border, I believe the issue demands immediate action and difficult decisions which run against the grain of constituency politics.
Supporting this cynical view is that the senate rejected an amendment which would have taken steps to ensure that mortgage borrowers who benefit from federal guarantees put 5% down and demonstarte an ability to service and repay borrowed monies.
What Should We Do With Fannie and Freddie? [View article]
The WSJ on the Fed's Mortgage 'Assets' [View article]
“[T]he cost of guarantee payments to security holders, including advances of interest at the security coupon rate, exceeds the cost of holding the nonperforming loans in the company’s mortgage-related investments portfolio as a result of the required adoption of new accounting standards and changing economics,” Freddie said in the announcement today.
New Financial Accounting Standards (FAS) 166 and 167 affected the transfer of financial assets and the consolidation of variable interest entities. Essentially, the standards require financial firms to bring securitized assets onto balance sheets.
Because of the standards, it would be more expensive to maintain guarantee payments to security holders than simply purchasing most delinquent loans out of PCs and holding them in portfolio, Freddie said.
Tim's Testimony on the Hill: Ho Hum or Ahem? [View article]
Economic Mindset Won't Change; Depressionary Relapse May Be Coming [View article]
Recognizing this, you are essentially making an argument to repeal current policy and move towards avoiding the Japanese experience by encouraging price discovery, recognizing impaired assets and dealing with insolvent banks. By doing this we purge the system of malinvestmments and allow remaining capital to be allocated to better uses and invested in assets aligned with demand.
How deflationary this course might be is not at all clear as we are already in a period in which money supply is contracting, consumers are delevering and banks are not lending; how much more deflation would be introduced through the swift actions you advocate cannot be quantified. Banks, their owners and their creditors would take a hit but this would be offset by cleaving millions of consumers from all consuming mortgages, releasing spending power.
The jihad against deflation is a popular economic meme but I question the efficacy of fiscal spending and am far more concerned about our accumulating federal debt.
Fannie's Horrible Year [View article]
Many interesting correlations between loan to value and delinquency rates.
Short Selling Restrictions 'A Great Indicator of Imminent Market Crashes' [View article]
Faced with reality, the SEC is simply trying to forestall the inevitable by imposing short selling restrictions that will not work over the long run. Market forces will eventually prevail and reflect the underlying values of any and all securities.
These restrictions on short selling may delay declines but as we have seen before if there are only "asks" and no "bids" prices will continue to collapse until fair value is established.
Bernanke: Denying the Obvious [View article]
Why Government Bonds Are Not the Place to Be in 2010 [View article]
The Government Sponsored Bubble [View article]
The rest of the world has undertaken similar actions, but the dollar is getting pounded because we are duty bound to act in the interests of the world's defacto reserve currency and our own economic interests........but are not doing so. This tsunami of money is sluicing into just about every financial asset and historical correlations are falling apart because there have never been such oceans of money sloshing about. Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have outperformed the Standard & Poor’s 500 Index of U.S. stocks, which has gained 18.6 percent. That compares with 70.6 percent for Brazil’s Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.
Meanwhile corporations have slashed employment to to goose earnings; lending is contracting; unemploymnet is growing; international trade is collapsing; we are facing over $9trillion in deficit borrowing over the next decade; reserve holding of dollars is declining; and NOTHING has been done to reform the banking system because the banks own congress who own the administration. No wonder the elite have done well.
FHFA's DeMarco Speaks. Remarks Offer Little Room for Optimism [View article]
FHA foreclosures are up something like 75% and 20% to 25% of the loans issued in the last two years are in trouble. Ginnie packages FHA and VA but the guarantee liability rests with FHA.
From today's NYT reporting on a content FHA customer:
That was the case for Bernadine Shimon. Like many Americans, Ms. Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.
She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.
“The government gave me another chance,” she said.
UNBELIEVABLE!!!!!!!!!!!! Barney Frank said the program was helping to stabilize housing prices.
The Coming Consequences of Banking Fraud [View article]
In each case, successive bubbles were fostered through irresponsibly loose monetary policy that distorts normal market signals, encouraging speculation and consumption. And in each case the bubbles collapsed through tightening of credit to address imbalances and speculative excesses but well after the fact.
The Japanese experience is eerily similar to our recent crisis as that it was brought on by a high rate of domestic savings (we had China) easy money, loose oversight, an influential cartel and lax underwrting standards. Their response was to raise interest rates and then lower them when the scope of damage became apparent; the stock market cratered as did commercial and residential real estate prices.
The Japanese economy stagnated for the next decade and for a variety of reasons, including demographics and aging population, it is only a shadow of its former self. Most of this is a result of a farrago of poor policy responses to the crisis and a stubborn unwillingness to force the zombie banks to writedown indisputably bad assets.
Despite our unwillingness to force the banks to writedown bad assets, the unprecedented scale and scope (global) of current monetary and fiscal policy clearly has the potential to create the next bubble and I believe it will. Understanding that the effects of our monetary policy is not restricted to our shores, the massive injections of liquidity do not have to remain within the US and will trickle towards the next puddle of speculative excess.
If I am correct in where I think it will be.....and its just speculation on my part though alarm bells have already been heard.....it will be a big one. But that's part of the process; each bubble gets bigger, each inflicts ever more damage and each new bubble requires ever greater amounts of liquidity.
Post Traumatic Crash Disorder? [View article]
Your comments on the traders playing out the sentiment and momentum play are interesting because there are in for a day on a day trade or a couple of days on a swing. This is is exactly why the four junk stocks have acounted for 30% or so of recent volume.
Without delving into the fundamentals of this market, which in a manner of speaking do not exist or are either weak, the moves since the 666 lows of March have been characterized by low volume, imbalances between large cap and small cap, low grade issues enjoying big moves and serious and unrestrained excesses in valuations.
Sobering Stat: ARMS Index Indicates Market Is at Peak, Not Bottom [View article]
The market is clearly overbought and has risen to unsustainable levels. It was first better than expected earnings, then it was the growth of China, then it was about housing and other reports, then it was we sold a few more cars through the clunker program and now we are starting to take stock of the basics. They have remained unchanged and over the long-run these cannot be abrogated by either liquidity or complicity.
Growth in China is in serious jeopardy and central authorities are genuinely concerned about creation of excess capacity and speculation in commodities, casino's and equities. Recent policy actions, designed to mute some of the excesses, has been initiated over concern of these excesses and the larger unspoken concern over the financial health of the economy. Corporations with deteriorating earnings are borrowing more money; under usual conditions they would be denied additional credit. In parallel, banks are concealing non-performing loans through rolling them over. Some smart people, including Micheal Grant, think China is a ticking time bomb.
Meanwhile, stateside, the core problems of underemployment, consumer spending and bankiing sector health remain unchanged.
To an extent consumer spending and underemployment are intertwined; but even if consumers, who have jobs, were not frightened by the economy and the administration's policies they would still want to save and liquidate debt therby containing spending. Prospects for the unemployed are miserable and, unfortunately, government and the apparatchiks of MSM do nothing to either clarify or correct the resports released federal departments and agencies. The bottom line is hiring is still trending down amid a growing potential labor force.
If China follows the path of Japan, the model country that could do no wrong until 1989, and the US consumer spending continues to contract, what will be the catalyst to spur growth and profits? Many times people when confronted by such a question will resort to bromides that touch upon ingenuity, creativity and innovation but it is easy to forget that these essential qualities must be nurtured.
A solid investment environment depends on a strong and stable currency, restrained federal spending, less harmful legislation, dependable contract law, limits on taxation and countercyclical capital regulation.
In my humble view things, when looking around the corner, appear rather bleak.